"AI Bubble" alarm rings again? Tokyo AI investment frenzy encounters profit-taking, foreign capital sells Japanese stocks net for the first time in two months

As of last week's closing of the Japanese stock market, overseas investors became net sellers of the Japanese stock market for the first time in two months, ending the recent frenzy of AI investment that had been driving the benchmark Nikkei 225 index to record highs. According to data from the Japan Exchange Group, foreign investors sold approximately 395 billion yen (about 25 billion US dollars) worth of Japanese stocks in the week ending May 29. This marks the end of the wild trend of foreign investors buying Japanese stocks for eight consecutive weeks. At the time of the foreign selling in the Japanese stock market, the Nikkei 225 index, with technology stocks as its core weight, rose above the unprecedented 65,000 point level for the first time, surging to near 68,700 points, mainly driven by the strong performance of giants closely associated with AI computing power infrastructure such as SoftBank Group, Socionext, Tokyo Electron, Advantest, and Murata Manufacturing. Analysts point out that the recent rapid rise in the Nikkei 225 index, along with the Nasdaq 100 index, the Philadelphia Semiconductor Index, and the Korean Kospi Composite Index, has raised concerns among some market participants about the overheating of the AI investment frenzy in Tokyo and global stock markets. This has prompted them to lock in profits recently. As shown in the chart above, foreign investors have turned into net sellers in the Japanese stock market after buying for several consecutive weeks. SoftBank, Socionext, Socionext, Advantest, Tokyo Electron, Lasertec, and Disco, among others, occupy a relatively high weighting in the Nikkei 225 index, and are popular stocks in the AI chip and semiconductor equipment sectors. They are considered the most important "narrative axis" of recent massive inflows of foreign capital into the Japanese stock market and the strong rise in the Nikkei 225 index. The continued strong performance of AI chip and semiconductor equipment leaders in the Japanese stock market can be attributed to the reevaluation trajectory of the AI computing power chain brought about by the unprecedented demand for NVIDIA AI GPUs. Compared to the US and Korean stock markets, which are also dominated by the AI computing frenzy, Japan's uniqueness lies in its possession of a large number of essential AI assets, deeply embedded in the AI computing power chain, such as Tokyo Electron, Advantest, Disco, Lasertec, Socionext, and SoftBank. Therefore, foreign investors generally view Japan as the "second battlefield of the AI computing power infrastructure chain." Statistics show that the Nikkei 225 index has risen sharply by 34% since the beginning of 2026, significantly outperforming major stock indices in the US and Europe. Japanese NAND flash memory chip manufacturer Socionext has surged by more than 630%, while SoftBank Group, a major Japanese investment institution focusing on AI chips, has seen its stock price rise by over 70% this year. SoftBank's latest market value has exceeded 260 billion US dollars, surpassing Toyota Group and becoming the highest valued listed company in Japan at one point this week. SoftBank's stock price has soared in recent years mainly due to the skyrocketing demand for ARM Holdings Plc, which owns the ARM instruction set architecture. SoftBank's massive investments in Arm Holdings, Graphcore, and Ampere Computing in recent years, as well as its substantial investments in OpenAI and the US "Stargate" AI infrastructure project, reflect its full-stack layout from the bottom AI hardware architecture to the AI computing power infrastructure cluster to the AI application layer. SoftBank founder Masayoshi Son has publicly stated that SoftBank's goal is to become the largest provider of AI computing power and application layer basic platforms in the era of "super AI" (ASI) in the next ten years, and has taken an almost "all in" aggressive stance on ChatGPT developer and global AI large model leader OpenAI. Pelham Smithers, managing director of UK stock research company Pelham Smithers Associates, said, "People are increasingly feeling that AI investment is turning into an AI bubble. We predict that about 70% of the rise in the Japanese stock market in 2026 will come from technology stocks related to the AI ecosystem." He said that as market caution increases, some global investors "hope to leave Japan and invest in markets like Europe, where the AI color and weighting are not so strong." Shota Sando, senior analyst at Tokai Tokyo Intelligence Laboratory Co., said that the re-balancing of domestic investment portfolios in Japan triggered by the MSCI quarter index review may also have contributed to the outflow of foreign funds from the Japanese market. Several Japanese companies, including Japan Airlines, Matsukiyo Cocokara & Co., and Sekisui Chemical Industry, have been removed from MSCI's global standard index on May 29, despite being long-standing weighted stocks. In contrast, domestic investors in Japan steadfastly bought Japanese stocks last week, with institutional investors net buying approximately 477 billion yen and individual investors buying approximately 106 billion yen.